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Poway Unified Might Re-Hire Controversial Bond Consultants

A slew of consultants who brokered Poway Unified’s notorious $1 billion capital appreciation bond deal in 2011 are up for more bond work Wednesday night — though it’s unclear how much they stand to make.

District staff are recommending the school board approve [1] the selection of special tax consultant Dolinka Group of Irvine, special disclosure counsel McFarlin & Anderson and bond underwriter Stifel, Nicolaus & Co. — which acquired firm Stone & Youngberg — to assist the district with the upcoming sale of Mello-Roos bonds.

How much in special tax bonds the district plans to sell and how much each firm will get paid isn’t disclosed on board documents. The district did not respond to a request for the amounts.

On the 2011 capital appreciation bond sale [2] alone, Dolinka made $288,000 and Stone & Youngberg made $813,751, data from the state treasurer shows.

In that deal, brokers sold $105 million in general obligation bonds with the promise to repay investors $981 million by 2051. The district will forgo making any payments for the first 20 years as interest piles up, and pay off the debt and interest in the last 20 years.

The bond debt — which cannot be paid off early [3] sparked statewide reforms [4] that now limit the principal-to-debt repayment ratio for capital appreciation bonds to 4-to-1, and the number of borrowing years to 25. State law now also requires additional public notice and allow for earlier payoff.

Then-state Treasurer Bill Lockyer chided those who worked on Poway’s CAB bond [5] in a 2012 interview. “I would fire staff that made a deal like this,” he said. “And if I were a voter, I’d pick a different school board. But that’s just how I react to how egregious I think this deal is.”

Lockyer also called out the financial consultants specifically: “We know who underwrote these deals, who the financial advisers were, who the bond firms were that said they were all fine. … That track record hurts you.”

Lockyer and state Attorney General Kamala Harris heaped extra criticism on Poway Unified for squeezing an additional $21 million [6] out of the 2011 bond sale at great cost to taxpayers.

“That somebody pitched that as part of the deal I think adds to the odor around it,” Lockyer said.

But Poway staff still finds the firms’ track records appealing.

Poway advertised the underwriter job and only considered firms that completed a minimum of 10 special tax transactions for at least five school districts in California since 2010. Two firms responded and qualified: Stifel and Piper Jaffray.

Officials with Stifel, Dolinka and McFarlin & Anderson did not respond to multiple requests for comment.

Dolinka is currently under contract with the district, but officials would not make the contract available for public viewing before Wednesday’s board meeting. The only employee with access to the document is on vacation, district officials said. Board documents show the board approved a five-year $625,000 agreement [7] with the firm for Mello-Roos financial and demographic consulting work in February 2014.